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NEW YORK-Financial guarantee insurers MBIA Inc. and CapMAC Holdings Inc. are discussing a possible merger.

Armonk, N.Y.-based MBIA, through subsidiary MBIA Insurance Corp., is the nation's largest municipal bond insurer. The subsidiaries of New York-based CapMAC focus on structured finance, including underwriting financial guarantee insurance for asset-backed securities.

Based on CapMAC's closing stock price on Thursday and its outstanding shares, a deal between the two insurers could be valued at about $510 million. As of June 30, MBIA had $2.54 billion in capital, while CapMAC had $272 million, according to rating agency Standard & Poor's Corp. A CapMAC spokeswoman said there is no time frame as to when a deal might be announced.

The MBIA-CapMAC talks follow the announcement that financial guarantee insurer Connie Lee Insurance Co. will be acquired by a subsidiary of New York-based Ambac Assurance Corp. (BI, Oct. 27; Oct. 13).

Richard P. Smith, an S&P senior vp, noted that CapMAC holds about a 4% share of the financial guarantee market, while Connie Lee's market share totaled about 2%. "We don't really view this as substantive consolidation in the industry," he said.

He noted also that because CapMAC addresses a segment of the market in which other bond insurers rarely participate, a merger with MBIA would not necessarily mean the removal of a competitor from the market.